Fiscal Dominance: Implications for Bond Markets and Central Banking

Jean Barthélemy, Eric Mengus and Guillaume Plantin ()
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Guillaume Plantin: Sciences Po

No 1532, HEC Research Papers Series from HEC Paris

Abstract: Fiscal dominance refers to situations in which fiscal policy imposes restrictions on monetary policy. Large shifts in the dynamics of sovereign debts, surpluses, and central bank's balance sheets since the Great Financial Crisis have created the perception of a heightened risk of such fiscal dominance in major jurisdictions. This paper reviews the theoretical and empirical literature on fiscal dominance. We offer a simple theory in which fiscal dominance arises as the outcome of strategic interactions between the government, the central bank and the bond markets.

Keywords: Fiscal dominance; game of chicken; Fiscal-Monetary Interactions (search for similar items in EconPapers)
JEL-codes: E31 E52 E63 H63 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2024-11-08
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1532

DOI: 10.2139/ssrn.4989409

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